Gilead Sciences: Smart Company, Great Track Record

Can you name a stock that is poised to see its stock price rise for the 12th consecutive year? No, it's not Apple (AAPL) or Walmart (WMT). Nor is it an energy stock or some unknown small cap either. In fact, it is one of the largest biotechnology companies in the world. This year it is expected to report over $5.3 billion in revenues – an increase of 26% over last year.

The company is Gilead Sciences (GILD). Every year since 1997 the stock has appreciated in value. Not only has the share price gone up, but it's gone up a lot. In 10 out of the last 12 years it has appreciated by over 10% and is poised to do so again in 2008. To date the shares are up 11% for the year. Through the post-dot com boom of the early 1990's, through the recession of 2001-2002, and even through this year's massive stock market crash, Gilead Sciences shareholders have continued to smile while their fellow investors have thrown up their hands in despair.

Of course, it would have been great to have bought shares in 1997 and got to experience the average 35% return for yourself. However, for those investors who haven't participated in this run, the question is can it continue? With its shares currently trading at $50 per share, the market values the company at 21x next year's earnings. While not cheap on a value basis, Gilead Sciences is not a value stock. It is a true growth stock and a good one at that.

Wall Street analysts expect the company to grow revenues by another 19% next year. And the profits just keep rolling in. With EBITDA margins of over 50% and net profit margins of over 35%, the company is generating tremendous amounts of cash. While there are other good cash flow machines out there, many don't know what to do with the cash once they earn it. It simply sits on the balance sheet earning marginal interest. However, Gilead Sciences has a track record of investing in the growth of the company and those investments have paid off.

In 2007, the company had a return on invested capital [ROIC] of almost 40%. And the return on equity [ROE] was over 61%. In a time when investors are desperately looking about for stock market winners, Gilead Sciences should not be overlooked.

Disclosure: none

Comments

[Portfolio M...:]

Every time Gilead makes an acquisition, some commentators accuse them of overpaying. And every time, the acquisition turns out to have been an extraordinary bargain. Gilead is also a tremendous innovator in the structuring of partnerships. Working with Bristol Myers to put AIDS drugs from two separate companies into a single pill has been a huge win, both for the companies and for the patients. Because the excellence of the company's management is not well understood, investors have been consistently underestimating Gilead's growth for almost a decade.

2008 Dec 26 12:17 AM